Over the last decade, a string of Tory party chancellors have raised taxes in sneaky ways in the hope we don’t spot what they are doing. So while Truss and Sunak make new tax cut pledges, voters should focus on the ones they aren’t talking about.
The Treasury is hooked on stealth taxes. You probably pay a heap of them without realising it (which is the point).
Last year, then Chancellor Sunak froze income tax, inheritance tax and capital gains tax thresholds for five years.
The move was originally expected to raise £8 billion a year but now looks set to deliver an incredible £20.5 billion as inflation rockets, according to the Institute for Fiscal Studies.
You can see the appeal to the Treasury.
As Stephanie Court, private client tax director at RSM UK, points out. “More than a million on low pay will be dragged into paying basic rate 20 percent income tax by 2026, while a further 1.25 million will pay 40 percent.”
Many pensioners may be surprised to find that next year’s bumper State Pension increase could push them into paying basic rate tax.
That is only a tiny part of the stealth tax onslaught.
Incredibly, the £325,000 inheritance nil-rate threshold has been frozen at since 2009. If it had kept pace with inflation it would be closer to £500,000.
While this is partly mitigated by the £175,000 main residence nil-rate band, that only applies when passing your home to direct descendants such as children and grandchildren.
In June 2009, the average house price was £157,713, Halifax figures show. It now stands at £294,845, an incredible 87 percent higher.
No wonder IHT receipts hit an all-time high of £6.1 billion during the 2021/22 financial year, and they will only climb.
With the IHT freeze set to continue until 2026, we may soon reach a point where the average home will cost more than the £325,000 IHT threshold.
Paul Wilcox, director of family wealth managers the WAY Group, says: “IHT is particularly pernicious as it is charged on wealth people have already paid tax on.”
These are only the tip of the stealth tax iceberg, says Tim Walford-Fitzgerald, partner at accountancy firm HW Fisher.
In 2013, the high income child benefit tax charge started clawing back child benefit where one parent earns more than £50,000. It costs a family with two children nearly £2,000 a year, and that £50k threshold has not increased.
Similarly, a tax that shrinks the personal allowance by £1 for every £2 someone earns above £100,000 has been held at that level since 2010.
Among other stealth levies, the personal savings allowance, which allows basic rate taxpayers to earn £1,000 in savings interest free of tax, and £500 for higher-rate taxpayers, has been frozen since introduced in 2016.
Walford-Fitzgerald also highlights the dividend allowance, frozen at £2,000 since 2018, and the £1,000 a year property or trading tax-free allowances, unchanged since April 2017.
Today’s stamp duty thresholds for property purchases were set in 2014. House prices have rocketed since then, so have the Treasury’s receipts.
State pension payments could stop for thousands in months – act now [WARNING]
Asda unveils major change as it slashes petrol and diesel prices [INSIGHT]
Britons should use ‘shampoo bottle’ to avoid being robbed on holiday [GUIDE]
While some tax thresholds are quietly frozen, others have been actively cut. In 2010, the maximum you can save in a pension each year, called the annual allowance, stood at £255,000. Today it is just £40,000.
The pensions lifetime allowance, the amount savers can hold across all their pension funds before paying a punitive 55 percent tax charge, stood at £1.8 million in 2011.
Today it is just £1,073,100 and will be frozen until 2026, says Stuart Feast, chairman of pensions transfer service Zippen. “As inflation hits a 40-year high, its real value has dramatically shrunk.”
Truss and Sunak’s tax cut promises look like deliberate misdirection when the real pain is happening without people noticing it.
As the tax burden hits a 70-year high, it’s time politicians came clean about what we all pay.